Account based pension treatment set to change 1 Jan 2015

THE Centrelink treatment of account based pension income streams (ABP) will change on 1 January 2015, as a result of measures introduced by the previous government.

Currently, the income from an ABP is calculated using a formula that takes into account the life expectancy of the recipient.

For example, if a 65 year old female single pensioner had $200,000 in super, and was drawing an ABP of $10,000 a year, $9250 would be exempt from Centrelink. This would leave only $750 a year to be assessed under the income test.

Under the proposed rules, the whole $200,000 in super would be subject to deeming and assumed to be earning $6280 a year. This would cause her pension to drop by around $20 a week.

The old rules will be grandfathered. This means you will be unaffected if, at 1 January 2015, you have an ABP in place AND are receiving income support payments from Centrelink. An income support payment includes age and service pension, disability pension, carer payment and Newstart allowance.

Grandfathering will not apply if you change income stream providers after 1 January 2015, or cease to receive an income support payment, or start an ABP prior to 1 January 2015 but are not yet receiving an income support payment.

Keep in mind the changes apply to income test affected pensioners only.

Here is a simple way to think about it. If you are a single homeowner, you are almost certainly going to be assessed under the assets test if your assessable assets are over $253,000. For a homeowner couple, the number is $321,000.

There have been many emails from retirees who have not reached pension age, and are considering starting an ABP prior to January to bring themselves under the grandfathering rules. This could be a costly mistake because money in superannuation is not assessed by Centrelink until the holder reaches pensionable age, and you won't be eligible for grandfathering if you are not receiving an income support payment on 1 January. This may be because you have not reached pensionable age, or because you have too much income or assets to qualify for it.

Yes, it's complicated stuff, and I urge you to take advice sooner rather than later. Depending on your own situation, there may be strategies such as restarting an ABP to lock in a higher deductible amount if the account balance has risen significantly since the pension started, amalgamating additional super benefits and restructuring beneficiary nominations that improve your situation.

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email: noelwhit@gmail.com.